Contrary to common sense, petroleum products became the number one export item of Korea last year, and setting a new record at the same time. It is quite meaningful that Korea has turned petroleum products into its major export item in that Korea is a non-oil producing country.
In 2012, exports of such products totaled US$56.2 billion, increasing by 8.9% from a year earlier, and accounting for 10.3% of the country’s total exports. This was followed by the semiconductor (US$50.4 billion), general machinery (US$480 billion) and automobile (US$47.2 billion) sectors. “It is no stretch to say that oil-related products contributed the most to Korea becoming the world’s eighth largest trading country last year and breaking the US$1 trillion mark in terms of total exports for the second consecutive year,” said the Korea Petroleum Association.
The petroleum industry of Korea achieved US$10 billion exports in 2004 and increased this amount to US$20.4 billion in 2006, US$37.6 billion in 2008 and US$51.7 billion in 2011, and thereby putting its name on the list of the country’s 10 major export sectors each year since. GS Caltex won the US$25 Billion Export Tower Award, which is the highest prize, on Trade Day last year, while SK Energy and S-Oil each received the US$20 Billion Export Tower Award, and Hyundai Oil Bank garnered the US$8 Billion Export Tower Award.
This fast growth can be attributed to the government’s systemic support and the industry participants’ dedicated efforts. The sector began to take shape in 1972 when the government launched its second five-year economic development plan and put into operation the national petrochemical complex at Ulsan City. Since then, it has supplied petroleum products essential for industrialization; positioning itself as a key industry of Korea.
In the 1980s, investment in the sector skyrocketed, making it one of the main export industries along with the semiconductor, steelmaking, shipbuilding and automobile sectors. The oil refining industry has received massive investment since the mid 1990s for facility improvement and export enhancement. Exports from the sector recorded US$5.8 billion in 1996, which was equivalent to 4.7% of the national total. Capital investment reached no less than 11 trillion won during the last five years as companies equipped themselves with advanced oil refining facilities in which bunker C oil is used to produce petroleum, kerosene and diesel products.
At the same time, oil companies have made aggressive investments while striving to diversify their export destinations. For example, exports to emerging markets such as Indonesia increased by roughly 72% year-on-year in 2012, while those to China, the largest export market, decreased 18% during the same period.
The petrochemical industry’s exports are also on the rise thanks to its aggressive investment and rising demand in emerging nations. In China, demand for petrochemical goods such as resins and rubbers has soared by an annual average of 10.8% since 2001 to amount to 130 million tons in 2011.
Still, Korean petroleum product manufacturers are facing a challenge as their competitors in the Middle East are expected to be engaged in price dumping in order to keep them at bay, while the United States and Canada are planning to expand shale gas production. Another potential hurdle is the issue of greenhouse gas reduction, although the Kyoto Protocol is currently at a stalemate due to the global financial crisis and the absence of leading economies like the United States and China.
“The construction, shipbuilding and automobile industries are likely to go into a recession sooner or later, but the petrochemical sector is expected to enjoy a boom for the time being as the domestic economy recovers and exports to emerging markets including China increase,” said the Hyundai Research Institute in a recent report.
“However, the industry will have to work on innovative technologies to provide against the era of natural gas, while making greater efforts to produce high value added products in order to deal with cheaper ones and build overseas manufacturing facilities in regions where raw materials can be procured at lower costs,” it advised, adding,“Furthermore, the petrochemical sector, which is one of the targets of greenhouse gas-related regulations, has to try to cope with environmental problems.”